Ruiz v. Countrywide Home Ln

In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 01-21028
_______________
THERESA O’SULLIVAN,
FOR HERSELF AND ALL OTHERS SIMILARLY SITUATED; ET AL.
Plaintiffs,
JON MAYNARD,
FOR HIMSELF AND ALL OTHERS SIMILARLY SITUATED;
HEATHER MAYNARD,
Plaintiffs-Appellees,
VERSUS
COUNTRYWIDE HOME LOANS, INC.,
Defendant-Appellant
****************************************************

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2
m 01-51190
_______________
SERGIO RUIZ,
Respondent-Appellee,
VERSUS
COUNTRYWIDE HOME LOANS, INC.;
PEIRSON & PATTERSON, L.L.P.,
Petitioners-Appellants.
_________________________
Appeals from the United States District Court
for the Southern District of Texas
and the Western District of Texas
February 7, 2003
Before JONES, SMITH, and SILER,*
Circuit Judges.
JERRY E. SMITH, Circuit Judge:
In these consolidated appeals, each district
court certified a class of plaintiffs who paid
mortgage preparation fees to law firms select-
ed by defendant Countrywide Home Loans,
Inc. (“Countrywide”), a mortgage broker.
Plaintiffs allege that Countrywide accepted
kickbacks from the law firms in violation of
the Real Estate Settlement Procedures Act
(“RESPA”), 12 U.S.C. § 2607(a)-(b), and
violated the Texas Unauthorized Practice of
Law (“UPL”) Statute, TEX. GOV’T CODE
§§ 83.001-83.006. Because we conclude that
both district courts improperly certified the
classes, we reverse and remand.
I.
Countrywide originates and services mort-
gage loans, offering approximately 250 loan
programs to potential homeowners. Consum-
ers can obtain a loan either through one of
Countrywide’s thousands of retail storefront
locations or through a mortgage broker. * Judge of the United States Court of Appeals
for the Sixth Circuit, sitting by designation.

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3
Countrywide prepares a set of closing doc-
uments for each loan. Consistent with state
law, Countrywide uses attorneys to prepare
these documents for its wholesale and retail
loan operations.1 Federal law requires Coun-
trywide to provide a HUD-1 Settlement State-
ment (“HUD-1") to borrowers and sellers to
disclose the various settlement costs, including
attorney’s fees, that are listed as a “Document
Preparation Fee” on the HUD-1.
Plaintiffs Jon Maynard (No. 01-21028) and
Sergio Ruiz (No. 01-51190) obtained home
mortgage loans from Countrywide. Maynard
obtained his loan from one of Countrywide’s
Texas retail locations; Ruiz transacted with
Countrywide’s wholesale division through a
mortgage broker. At closing, both paid docu-
ment preparation fees that appeared as a direct
payment to the law firms on their HUD-1
statements. Maynard’s HUD-1 reflected a
payment of $225 to Gregg & Valby,2 a law
firm serving as the exclusive residential mort-
gage document preparer for Countrywide’s
Texas retail division. Ruiz’s HUD-1 showed
a payment of $200 to Peirson & Patterson, a
preparer for Countrywide’s wholesale division.
Gregg & Valby and Peirson & Patterson
provide legal services to Countrywide through
a time-saving process that permits the process-
ing of documents in bulk. Countrywide owns
a computer software system, known as EDGE,
containing various legal and non-legal docu-
ments necessary for the completion of resi-
dential mortgage transactions. Once a poten-
tial homeowner is approved for a loan, a
Countrywide employee enters data concerning
the transaction into EDGE, including infor-
mation on the borrower and the property, the
loan amount, and applicable interest rates.
This process takes between two and five
hours.
The EDGE system generates an initial set
of mortgage closing documents, the quantity
of which varies depending on the type of loan.
In the retail division, the documents are print-
ed by Countrywide employees and faxed to
Gregg & Valby’s offices, where they are re-
viewed by attorney and non-attorney loan spe-
cialists. Gregg & Valby prepares a response
sheet for Countrywide indicating any needed
corrections. Approximately half of the loan
documents are sent back to Gregg & Valby for
a second review, and some are sent back ad-
ditional times before final approval.
Peirson & Patterson’s employees, on the
other hand, are located on-site at
Countrywide’s wholesale division. Although
Countrywide employees still initially enter data
into the EDGE system, Peirson & Patterson
employees select and print the mortgage
forms. Like the retail division, representatives
of the law firm review the forms for content
and accuracy. Nevertheless, Peirson &
Patterson employees make any necessary
corrections, so there is no shuffling of papers
between separate offices.
A portion of the document preparation fee
paid to Gregg & Valby and Peirson & Patter-
son is reimbursed to Countrywide, which con-
tends this portion of the fee represents its
1 Texas law prohibits non-lawyers from directly
or indirectly charging compensation for “all or any
part of” the preparation of loan documents
affecting the transfer of title to real estate. TEX.
GOV’T CODE § 83.001(a).
2 In actuality, Maynard paid $175 of the total
$225 fee, while the seller paid the remaining $50.
Ruiz paid the entire $200 document preparation
fee.

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4
share of the costs associated with the
preparat ion of each set of loan closing
documents. For example, Countrywide lists
the use and maintenance of its EDGE system,
the time spent by its employees inputting and
gathering data, and the costs of telephone
calls, faxes, paper, and photocopying.
The reimbursement amounts are set by
schedule and vary according to loan type.3 For
the Maynard’s “Conventional Purchase with
Deed,” Countrywide was reimbursed $130 out
of the $225 paid to Gregg & Valby. Similarly,
$100 of Ruiz’s $200 document preparation fee
was reimbursed to Countrywide. The HUD-1
does not reflect the fee splitting, but rather
shows only a direct payment of the entire
amount to the respective law firm.
Maynard and Ruiz allege that the fee
splitting constitutes a “kickback” or “referral
fee” in violation of RESPA § 8(a)-(b).4 In
addition, plaintiffs sued Countrywide under the
Texas UPL Statute,5 arguing that its
participation in the preparation of loan
documents constituted the unauthorized
practice of law.
In Maynard, the district court certified a
class consisting of:
All persons in Texas who, as part of a
residential real estate loan transaction
with Countrywide, from January 10,
1996 to the present, were charged a
“Document Preparation Fee” (or portion
of a document preparation fee) on their
HUD-1 Settlement Statement, where
Countrywide received a portion of the
document preparation fee, and Gregg &
Valby is listed as the provider of
document preparation services.
Similarly, in Ruiz, the district court certified
the following class:
All persons [since April 1993]: (1) who
obtained loans from Countrywide
secured by residential real property in
Texas; and (2) who paid for document
preparation fees and/or attorney’s fees
charged by Peirson & Patterson as
reflected by the HUD-1 Settlement
Statement.
Over objections that significant loan-to-loan
variations in the amount and type of work
performed require an individual analysis of
each transaction to determine the
reasonableness of the reimbursed fee, the
district courts found “the practice itself” of
reimbursing Countrywide for its services
satisfied predominance. This court permitted
Countrywide to appeal the class certification
orders pursuant to FED. R. CIV. P. 23(f).
II.
We review the certification of a class for
abuse of discretion. Stirman v. Exxon Corp,
3 The Countrywide-Gregg & Valby fee schedule
is set forth in the appendix hereto.
4 RESPA Section 2607(d)(2) requires
defendants to pay treble damages to plaintiffs
charged unearned fees. In total, Maynard seeks
approximately $90 million in damages for an
estimated class of 75,000 borrowers. Ruiz seeks
more than $58 million for a class of approximately
80,000 borrowers.
5 Ruiz also named Peirson & Patterson as a de-
fendant. Because Peirson & Patterson raises es-
sentially the same arguments against certification
as does Countrywide, our reference to Countrywide
includes Peirson & Patterson unless otherwise
indicated.

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5
280 F.3d 554, 561 (5th Cir. 2002). Because,
however, a court abuses its discretion when it
makes an error of law, we apply a de novo
standard of review to such errors. Id. The
party seeking certification bears the burden of
demonstrating that the requirements of rule 23
have been met. Allison v. Citgo Petroleum
Corp., 151 F.3d 402, 408 (5th Cir. 1998).
The district court must conduct a “rigorous
analysis of the Rule 23 prerequisites” before
certifying a class. Castano v. Am. Tobacco
Co., 84 F.3d 734, 740 (5th Cir. 1996).
Among the four prerequisites of Rule 23(a) is
the requirement that “there are questions of
law or fact common to the class.” FED. R.
CIV. P. 23(a)(2).6 Before a class may be
maintained under rule 23(b)(3), a court must
also determine that “questions of law or fact
common to the members of the class
predominate over any questions affecting only
individual members” and that “a class action is
superior to other available methods for the fair
and efficient adjudication of the controversy.”
FED. R. CIV. P. 23(b)(3). The predominance
and superiority requirements are “far more de-
manding” than is rule 23(a)(2)’s commonality
requirement. Amchem Prods. v. Windsor, 521
U.S. 591, 624 (1997).
Determining whether legal issues common
to the class predominate over individual issues
requires that the court inquire how the case
will be tried. Castano, 84 F.3d at 744. This
entails identifying the substantive issues that
will control the outcome, assessing which is-
sues will predominate, and then determining
whether the issues are common to the class.
Although this inquiry does not resolve the case
on its merits, it requires that the court look
beyond the pleadings to “understand the
claims, defenses, relevant facts, and applicable
substantive law.” Id. at 744. Such an
understanding prevents the class from
degenerating into a series of individual trials.
A.
RESPA seeks to ensure that real estate
consumers “are provided with greater and
more timely information on the nature and
costs of the settlement process and are
protected from unnecessarily high settlement
charges caused by certain abusive practices.”
12 U.S.C. § 2601(a). Both classes were
certified under § 2607(a)-(b), which states:
(a) No person shall give and no person
shall accept any fee, kickback, or thing
of value pursuant to any agreement or
understanding . . . that business incident
to or part of a real estate settlement ser-
vice . . . shall be referred to any person.
(b) No person shall give and no person
shall accept any portion, split, or
percentage of any charge made or
received for the rendering of a real
estate settlement service . . . other than
for services actually performed.
12 U.S.C. § 2607(a)-(b). Despite a
prohibition against kickbacks and referral fees,
RESPA § 8(c) permits “the payment to any
person of a bona fide salary or compensation
or other payment for goods or facilities
6 The four rule 23(a) requirements are:
“(1) numerosity (a class so large that joinder of all
members is impracticable); (2) commonality (ques-
tions of law or fact common to the class);
(3) typicality (named parties’ claims or defenses
are typical of the class); and (4) adequacy of rep-
resentation (representatives will fairly and
adequately protect the interests of the class).”
Mullen v. Treasure Chest Casino, L.L.C., 186
F.3d 620, 623 (5th Cir. 1999).

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6
actually furnished or for services actually
performed.” 12 U.S.C. § 2607(c)(2).
Both classes were certified after a
determination that rule 23(a)(2)’s commonality
requirement is met by the issue of whether
Countrywide’s receipt of compensation from
Gregg & Valby and Peirson & Patterson
constitutes an illegal kickback or referral fee
arrangement. In assessing rule 23(b)(3)
predominance, both courts rejected
Countrywide’s contention that liability should
hinge on determinations of whether, in
individual cases, a reasonable relationship
exists between the value of the alleged services
provided and payments received by
Countrywide.7 Rather, both courts found that
plaintiffs could show “the practice itself” bears
no reasonable relationship to the value of
Countrywide’s services en toto, while relying
on the fee splitting schedule for any post-
liability calculation of damages.
1.
Congress authorized the Secretary of HUD
to “prescribe such rules and regulations, to
make such interpretations, and to grant such
reasonable exemptions for classes of
transactions, as may be necessary to achieve
the purposes” of RESPA. 12 U.S.C. §
2617(a). HUD defines the § 8(c) exception in
terms of a reasonable relationship test, holding
that where “the payment of a thing of value
bears no reasonable relationship to the market
value of the goods or services provided, then
the excess is not for goods or services actually
performed or provided.” 24 C.F.R. §
3500.14(g)(2).8 This test was promulgated for
the purpose of assisting courts in ferreting out
kickbacks disguised as legitimate payments for
goods and services in complex real estate
settlement transactions.
In separate policy statements issued in 1999
and 2001, HUD clarified the reasonable
relationship test in the context of lender-broker
payments known as yield spread premiums. In
its 1999 Policy Statement, HUD expressed the
reasonable relationship test from 24 C.F.R. §
3500.14(g)(2) as a two-part inquiry: (1)
“whether goods or facilities were actually
furnished or services were actually performed
for the compensation paid”; and (2) “whether
the payments are reasonably related to the
value of the goods or facilities that were
actually furnished or services that were
actually performed.”9 HUD expressly limited
the 1999 Policy Statement to payments
between lenders and mortgage brokers.10
7 Countrywide does not question numerosity or
typicality. Although Countrywide argues that Ser-
gio Ruiz cannot adequately protect the interests of
his class pursuant to rule 23(a)(4), we need not
address this argument in light of our conclusion
that questions of law or fact do not predominate
over questions affecting individual class members.
8 Title 24 C.F.R. § 3500.14(g)(2) states that
where a payment does not bear a reasonable rela-
tionship to goods or services provided, this fact
“may be used as evidence of a violation of sec-
tion 8.”
9 Real Estate Settlement Procedures Act
Statement of Policy 1999-1 Regarding Lender
Payments to Mortgage Brokers, 64 Fed. Reg.
10,080, 10,084 (March 1, 1999).
10 So far as we can tell, courts have applied
both the 1999 and 2001 Policy Statements
exclusively in yield spread premium cases. E.g.,
Heimmermann v. First Union Mortgage Corp.,
305 F.3d 1257 (11th Cir. 2002); Glover v.
Standard Fed. Bank, 283 F.3d 953 (8th Cir.
2002); Schuetz v. Banc One Mortgage Corp., 292
(continued...)

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Yield spread premiums, analogous in some
ways to Countrywide’s reimbursement fee, en-
able borrowers to finance up-front closing
costs by paying a higher interest rate on their
home loan. HUD Policy Statement 1999, at
10,081. The yield spread premium is a
payment from the lender to the broker, the
amount of which reflects the loan’s interest
rate and consequently the lender’s profits. Id.
Although yield spread premiums are desirable
from a policy standpoint, because they permit
borrowers to finance up-front closing costs,
they are criticized by some as blatant referral
fees, varying only according to a higher
interest rate pushed on the borrower and not
by the broker’s actual services.11
Following HUD’s 1999 Policy Statement,
a few courts certified class actions contesting
yield spread premiums. In Culpepper v. Irwin
Mortgage Corp., 253 F.3d 1324 (11th Cir.
2001), cert. denied, 534 U.S. 1118 (2002), for
example, the court found that the broker’s
failure to tie the yield spread premium to spe-
cific goods or services was sufficient to create
a factual issue as to the overall intent of the
payment.12 From the 1999 Policy Statement’s
two-part test, Culpepper interpreted the term
“for the compensation paid” as requiring the
defendants to tie the disputed fee to specific
goods or services provided by the broker. Id.
at 1329. In doing so, the Culpepper court de-
termined that RESPA § 8 class actions could
be certified by looking only to the first prong
of the HUD testSSwhether goods or services
were provided for the disputed fee paid.
HUD disclaimed the Culpepper holding in
its 2001 Policy Statement,13 finding class cer-
tification in yield spread premium cases like
Culpepper inappropriate because “neither Sec-
tion 8(a) of RESPA nor the 1999 [Policy
Statement] supports the conclusion that a yield
spread premium can be presumed to be a re-
ferral fee” simply because the lender does not
have specific knowledge of what services the
broker has performed. HUD Policy Statement
2001, at 53,055. Instead, as the 2001 Policy
Statement clarifies, there is no requirement
that the lender and broker tie the disputed fee
to specific services provided. So long as the
total compensation paid to the broker is
reasonably related to the total value of the
goods or services actually provided, there is no
10(...continued)
F.3d 1004 (9th Cir. 2002).
11 See Schuetz, 292 F.3d at 1015 (“I see the
phrase ‘yield spread premium’ as an obfuscatory
way of avoiding calling a kickback a kickback.”)
(Kleinfeld, J., dissenting); Glover, 238 F.3d at 958
(“Some consumers . . . allege that this
compensation system is illegal under RESPA
because it fosters the payment of prohibited
referral fees. Others view this practice as an
option that fosters home ownership because it
reduces the amount of money required from
borrowers up-front and out-of-pocket.”).
12 Culpepper, 253 F.3d at 1332 (noting an ab-
sence of evidence showing “that [the lender] ne-
gotiates yield spread premiums loan-by-loan, rather
than paying them according to terms and conditions
common to all loans. Nor does [the lender] contend
that it intends some yield spread premiums to pay
for services and others to pay for referrals.”).
13 Real Estate Settlement Procedures Act
Statement of Policy 2001-1: Clarification of State-
ment of Policy 1999-1 Regarding Lender Payments
to Mortgage Brokers, and Guidance Concerning
Unearned Fees Under Section 8(b), 66 Fed. Reg.
53052 (October 18, 2001).

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§ 8 liability.14
We defer to 24 C.F.R. § 3500.14(g)(2), as
a broad agency rule, insofar as it provides a
mechanism for detecting kickbacks where the
§ 8(c) exception is invoked. Where, as here,
agency regulations are promulgated under ex-
press congressional authority, they are given
controlling weight unless they are arbitrary,
capricious, or manifestly contrary to the
statute. Chevron U.S.A., Inc. v. Natural Res.
Defense Council, Inc., 467 U.S. 837, 844
(1984).15 Given the failure of § 2607(a)-(b) to
provide a workable liability standard, we can-
not say that the reasonable relationship test is
manifestly contrary to the plain meaning of the
statute. If anything, RESPA’s stated goal of
eliminating “kickbacks or referral fees that
tend to increase unnecessarily the costs of cer-
tain settlement services,” 12 U.S.C. § 2601-
(b)(2), is furthered by the reasonable
relationship test, so we are bound to apply it in
assessing certification.
In addition, we look to the 1999 and 2001
Policy Statements insofar as they express the
reasonable relationship test as a two-part in-
quiry, asking first whether Countrywide
provided goods or services in connection with
the particular transaction, and second, whether
Countrywide’s compensation is reasonably re-
lated to the value of those goods or services.
We do not decide whether the policy
statements are entitled to Chevron deference,16
nor whether, for purposes of the reasonable
relationship test, the proper reference is the
total mortgage transaction or only the
reimbursement and services associated with
Countrywide’s preparation of legal
documents.17 Either way, both courts abused
their discretion in certifying the RESPA
claims.
2.
Plaintiffs concede Countrywide performed
some services in furtherance of document pre-
paration, but argue that its reimbursements do
not represent the reasonable value of those
services. We apply HUD’s reasonable
relationship test, which holds that any excess
may be used as evidence of a kickback or
referral fee.
Using a rationale similar to that of the Elev-
enth Circuit in certifying a yield spread
premium class in Culpepper, both courts found
certification proper, because they believe
predominance exists regarding whether “the
14 Id. at 53,055. Following HUD’s 2001 Policy
Statement, the Eleventh Circuit overruled Culpep-
per in Heimmermann, 305 F.3d at 1263.
15 See also United States v. Mead Corp., 533
U.S. 218, 226-27 (2001) (“[A]dministrative imple-
mentation of a particular statutory provision qual-
ifies for Chevron deference when it appears that
Congress delegated authority to the agency gen-
erally to make rules carrying the force of law, and
that the agency interpretation claiming deference
was promulgated in the exercise of that author-
ity.”).
16 See Krzalic v. Republic Title Co., 2002 U.S.
App. LEXIS 26744, at *20 (7th Cir. Dec. 26,
2002) (Easterbrook, J., concurring) (“I am
confident that Heimmermann and Schuetz erred in
thinking that the Real Estate Settlement
Procedures Act Statement of Policy 2001-1 is
itself conclusive under Chevron, as opposed to
informative (and potentially persuasive).”).
17 In its discussion of the issue, however, Coun-
trywide appears to argue that liability depends on
finding a reasonable relationship between its
reimbursement and the value of its document
preparation services, not its total compensation,
goods, and services.

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9
overall practice” violates RESPA. Plaintiffs
indeed argue that they have evidence showing
the reimbursement payments were not tied to
the services provided by Countrywide, and
thus violate § 8. Countrywide argues the
HUD reasonable relationship test requires a
transaction-by-transaction inquiry to assess
whether Countrywide’s reimbursement is
reasonably related to the undisputed services it
provides in connection with document
preparation.
Both courts erred by failing to acknowledge
Countrywide’s use of the § 8(c) exception as
a defense. Castano, 84 F.3d at 744.
Consistently with the HUD reasonable
relationship test, individualized factfinding will
be required for each transaction on the issues
of what goods or services Gregg & Valby and
Peirson & Patterson provided to Countrywide,
and whether the flat fee charged was
reasonably related to their value. Plaintiffs do
not attempt to argue that Countrywide
provided identical goods and servicesSSin type
or quantitySSin each transaction.
The overall intent of the reimbursement
practice, although perhaps satisfying the rule
23(a)(2) commonality requirement as a factual
issue common to all or at least most class
members,18 does not satisfy the more exacting
requirements of predominance. The only way
the overall practice may be proven to violate
RESPA, consistently with the HUD liability
standard, is to examine the reasonableness of
payments for goods and services. This inquiry
must be performed on a transaction-by-
transaction basis, because a single finding of
liability based on an unreasonable relationship
between goods and services does not
necessitate the conclusion that such
unreasonableness exists on a classwide basis.19
In both proposed class actions, there is a
question whether an overall practice or policy
violates a statute. But rule 23(b)(3)
predominance requires a court to ask, in light
of how liability is established under the
relevant statute, whether common questions
predominate over individual ones. Because
RESPA § 8 liability is established by making
individual comparisons of compensation to
actual services, not by presuming fire where
there is smoke, we find certification improper.
B.
Both courts also certified classes under the
UPL claim. Texas law forbids nonlawyers
such as Countrywide from charging or
receiving, either directly or indirectly, “any
compensation for all or any part of the
preparation of a legal instrument affecting title
to real property.” TEX. GOV’T CODE § 83.001.
Plaintiffs contend that Countrywide’s role in
18 See Jenkins v. Raymark Indus., 782 F.2d
468, 472 (5th Cir. 1986) (stating that the threshold
for commonality is not “high,” requiring only that
“resolution of common questions affect all or a
substantial number of the class members”) (citation
omitted).
19 See LaCasse v. Washington Mutual, Inc.,
198 F. Supp. 2d 1255, 1264 (W.D. Wash. 2002)
(“Given the possibility that some or all of the de-
fendants’ yield spread premiums may have
constituted an exchange for goods or services, it
would be impossible to determine liability from
generalized proof.”); Taylor v. Flagstar Bank,
F.S.B., 181 F.R.D. 509, 523 (M.D. Ala. 1998)
(“[N]o matter what Plaintiffs can easily prove
about the general contours of these transactions,
Plaintiffs still cannot prove (by a class method)
that none of the yield spread premiums at issue
were earned through the provision of services.”).

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10
preparing the loan closing documents violates
the UPL statute. As with RESPA, however,
the question of class certification is
complicated by the fact that chapter 83 does
not prohibit “an attorney from paying
secretarial, paralegal, or other ordinary and
reasonable expenses necessarily and actually
incurred by the attorney for the preparation of
legal instruments.” TEX. GOV’T CODE §
83.002. These services are not proscribed by
chapter 83, because they do not require the
use of “legal skill or knowledge.”20
Countrywide initially argues that neither
Maynard nor Ruiz has standing under the Tex-
as UPL statute. As an “inherent prerequisite
to the class certification inquiry,” Rivera v.
Wyeth-Ayerst Labs., 283 F.3d 315, 319 (5th
Cir. 2002) (citation omitted), we must
determine whether plaintiffs have a valid cause
of action under Texas law and whether they
have stated an injury-in-fact. Id. The statute
confers a cause of action on “any person who
pays a fee prohibited by [TEX. GOV’T CODE
§ 83.001].” TEX. GOV’T CODE § 83.005.
Countrywide argues that Maynard and Ruiz
cannot sue under § 83.005, because the law
firms, not plaintiffs, actually reimbursed the
fee. We disagree. Section 83.001 prohibits
those fees paid either “directly or indirectly”
for the preparation of real estate legal
documents. Realizing that Maynard and Ruiz,
as borrowers, ultimately paid all transaction
fees, the fact that plaintiffs indirectly paid the
disputed fee by first paying a document
preparation fee to the law firms does not
defeat their right to sue. Countrywide’s
narrow interpretation of chapter 83 standing
would eviscerate the term “indirectly” from §
83.001.
Insofar as Countrywide argues that
plaintiffs have not suffered a legally cognizable
injury-in-fact because they do not complain
they were charged too high a fee for the
mortgage documents or that the documents
were deficient, they ignore the fact that §§
83.001 and 83.003 create a right to recoup
fees paid to nonlawyers who exercise legal
skill or knowledge in preparing legal
documents. Because only those persons who
pay a fee can sue under § 83.005, the UPL
statute is distinguishable from those statutes
violating Article III that permit “any person”
to bring suit.21
Initially, rather than pointing to specific acts
requiring the use of legal skill or knowledge
common to each and every transaction,
Maynard and Ruiz allege that Countrywide’s
actions “across the board” violate the Texas
20 The parties dispute whether liability under §
83.001 requires the exercise of legal skill or
knowledge. Given that subchapter G is entitled
“Unauthorized Practice of Law,” and § 81.101 de-
fines “practice of law” as “any service requiring
the use of legal skill or knowledge,” it appears that
the Texas legislature sought to prohibit nonlawyers
from exercising legal skill or knowledge in the
preparation of legal documents. This view is
supported by an interpretative opinion issued by
the Texas Attorney General. See OP. TEX. ATTY.
GEN. JM-943, 1988 WL 406255, at *2 (1988)
(“What is meant in [chapter 83] by the ‘prepar-
ation of legal instruments’ must be decided with
reference to the practice of law.”).
21 See Lujan v. Defenders of Wildlife, 504 U.S.
555, 572-74 (1992) (holding that provision in
Endangered Species Act allowing any person to
bring a lawsuit to enforce compliance with
procedural requirements could not vest standing in
plaintiff who had not suffered an injury).

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11
UPL statute.22 As with the RESPA claims,
both courts found that individual issues did not
predominate, because it was Countrywide’s
overall practice that violates the UPL statute.
The district courts’ reasoning fails to account
for Countrywide’s intent to use § 83.002 as a
defense, specifically that its reimbursements
were ordinary and reasonable compensation
for secretarial or clerical assistance.
Ruiz takes issue with the overall
reimbursement scheme by arguing that it
conflicts with rule 5.04 of the Texas
Disciplinary Rules of Professional Conduct,
which prohibits lawyers from splitting fees
with nonlawyers.23 Assuming arguendo that
the reimbursement scheme violates rule 5.04,24
Ruiz points to no authority suggesting that
chapter 83 should be construed in light of the
Texas Disciplinary Rules of Professional
Conduct. Whereas the disciplinary rules apply
only to lawyers, chapter 83 imposes liability on
non-lawyers.25 Given § 83.002's failure to
mention rule 5.04 or any authority suggesting
that its terms do not mean what they say, we
will construe the statute according only to its
plain language, which sets no limitation
regarding how a lawyer may pay for secretarial
or clerical assistance.
Maynard, while similarly arguing that the
overall reimbursement scheme is inconsistent
with the Texas UPL statute, contends that
some of Countrywide’s individual practices vi-
olate chapter 83. For instance, Countrywide
employees examine and construe previous
mortgage documents in order to select which
one of the more than 250 forms will be used
for a particular transaction. Without deciding
whether this practice constitutes the
unauthorized practice of law, we note that
Countrywide does not deny that its employees
are responsible for selecting the proper form in
each and every transaction.
Similarly, it is undisputed that Countrywide
employees enter data into EDGE, generate an
initial set of closing documents, fax the
documents to Gregg & Valby, and enter
suggested changes in each transaction. A
finding that any of these practices, standing
alone, requires the use of legal skill or
22 Maynard, for example, states: “The
important point . . . is that the focus of the issue
truly is on the overall ‘program,’ as the district
court correctly noted in its opinion.” Ruiz states
that “the very nature of the arrangement between
Peirson & Patterson and Countrywide is prohibited
by Texas law governing the conduct of lawyers.”
23 Rule 5.04 states that “a lawyer or law firm
shall not share or promise to share legal fees with
a non-lawyer.” TEX. DISCIPLINARY R. PROF’L
CONDUCT 5.04(a), reprinted in Tex. Gov’t Code
Ann., tit. 2, subtit. G app. A (Vernon 1998) (TEX.
STATE BAR R. art. X, § 9).
24 Nevertheless, we note our inability to discern
a meaningful distinction between the Countrywide-
Peirson & Patterson fee arrangement characterized
by Ruiz as “systematic,” and the salary typically
paid to a secretary at a law firm, which Plaintiffs
concede is permissible under § 83.002. Both fees
are pre-determined, scaled, and split from a
lawyer's profits. Given that § 83.002 presupposes
payments for secretarial or paralegal work, Rule
5.04 cannot be as constraining as Ruiz would have
us believe.
(continued...)
24(...continued)
25 It is also worth noting that the Texas
Disciplinary Rules of Professional Conduct are
promulgated by the Texas Supreme Court, while
chapter 83 is a duly enacted statute by the state
legislature.

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12
knowledge is sufficient to confer liability under
the Texas UPL.26
Even though a class is theoretically
certifiable on these issues, we find that an
apportioned calculation of damagesSSrequired
by the Texas UPL statuteSSmeans that
individual issues predominate. Section 83.001
prohibits compensation for “all or any part” of
the preparation of mortgage documents, while
Section 83.005 grants “recovery of the fee
paid” to “[a] person who pays a fee prohibited
by [chapter 83].” In deciding whether the
term “fee” should be interpreted as (1) the
amount charged to Plaintiffs on their HUD-
1’s, (2) the amount reimbursed to
Countrywide, or (3) the portion of the
reimbursement actually spent on unauthorized
services, we are guided by Section 83.005’s
requirement that a recovered fee be
“prohibited by [chapter 83].” Only the last of
the three possibilities is a fee prohibited in its
entirety. Therefore, a plaintiff suing under the
Texas UPL statute is entitled to recover only
that portion of his total fee used to actually
finance the unauthorized practice of law.
The extent (but not the nature) of
Countrywide’s participation in the transactions
varies, making individualized calculations of
damages predo minate. Where the plaintiffs’
damage claims “focus almost entirely on facts
and issues specific to individuals rather than
the class as a whole,” Allison, 151 F.3d at 419,
the potential exists that the class action may
“degenerate in practice into multiple lawsuits
separately tried,” Castano, 84 F.3d at 745
n.19 (citation omitted). In such cases, class
certification is inappropriate.27
As we have noted, there are several
practices common to each transaction that may
or may not require t he use of legal skill or
knowledge. Although the propriety of each
practice can be determined on a classwide ba-
sis, the calculation of damages cannot. For ex-
ample, at least one practiceSSdata entrySSis
almost surely a secretarial or clerical function
within the meaning of the § 83.002
exception.28 Countrywide has demonstrated
26 Ruiz cannot make this argument, because
Peirson & Patterson employees (attorney and non-
attorney), not Countrywide employees, select and
generate the mortgage forms in the wholesale di-
vision. The only practice performed by
Countrywide employees in every wholesale
transaction is data entry, a practice that even Ruiz
does not argue is non-secretarial. As for Peirson &
Patterson’s potential liability for permitting its non-
attorney employees to select and generate forms,
the analysis is the same as for Countrywide’s retail
division in Maynard.
27 Allison, 151 F.3d at 413 (“[A]s claims for
individually based money damages begin to pre-
dominate, the presumption of cohesiveness
decreases while the need for enhanced procedural
safeguards . . . increases.”) (citation omitted);
Montelongo v. Meese, 803 F.2d 1341, 1351 (5th
Cir. 1986) (stating that claims are unsuitable for
class treatment when individual questions, such as
reliance and damages, predominate over class
questions”) (emphasis added). But see Bertulli v.
Indep. Ass’n of Cont’l Pilots, 242 F.3d 290, 298
(5th Cir. 2001) (“Although calculating damages
will require some individualized determinations, it
appears that virtually every issue prior to damages
is a common issue.”). Importantly, in Bertulli, the
court recognized the plaintiffs’ claims for
injunctive relief on top of money damages, noting
that “not all of the relief requires individualized
determination.” Id.
28 The 1988 Texas Attorney General Opinion
supports our view that data entry likely qualifies as
secretarial-type work under the § 83.002 exception:
(continued...)

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13
that the amount of data entry required in each
transaction varies depending on the type of
loan and the number of corrections required by
Gregg & Valby. Under the recovery provision
of the Texas UPL, Countrywide is entitled to
keep the reasonable value of its secretarial or
clerical services even if the other practices
violate Chapter 83. In light of the individual
calculation of damages that is required, the
district court abused its discretion in certifying
the UPL claims.
The orders certifying the respective classes
are REVERSED, and these matters are
REMANDED for further proceedings.
28(...continued)
“[T]he mere act of recording a borrower’s
responses to the questions on a standard form prob-
ably does not require legal skill or knowledge and
would therefore not be practicing law . . . .” OP.
TEX. ATTY. GEN. JM-943, 1988 WL 406255, at
*2.

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14
Appendix
LOAN TYPE INVOICE PAYMENT TO AMOUNT RETAINED
AMOUNT COUNTRYWIDE BY GREGG & VALBY
Conventional Purchase $ 175 $ 100 $ 75
Conventional Purchase $ 225 $ 130 $ 95
with Deed
Conventional Refinance $ 175 $ 100 $ 75
FHA Purchase $ 175 $ -0- $ 175
FHA Purchase with Deed $ 225 $ 50 $ 175
FHA Refinance $ 150 $ -0- $ 150
VA Purchase $ 175 $ 100 $ 75
VA Purchase with Deed $ 225 $ 130 $ 95
VA Refinance $ 100 $ -0- $ 100
Second Lien $ 75 $ 45 $ 30
One Time Close $ 295 $ 170 $ 125
The Countrywide-Peirson & Patterson rate schedule is less complex: The law firm receives a flat rate
of $200 for most loans, of which $100 is reimbursed to Countrywide. For FHA and VA loans only,
Peirson & Patterson receives $150, of which Countrywide is reimbursed $50.

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